The Granular Nature of Large Institutional Investors

نویسندگان

  • Itzhak Ben-David
  • Francesco Franzoni
چکیده

Over the last 35 years, the concentration of institutional assets in equity markets has increased dramatically. The stock ownership by the largest ten asset managers now accounts for 23.1% of total stock market capitalization, having quadrupled over this period. The paper asks whether idiosyncratic shocks to these institutions can spill over to their underlying holdings through their trading activity. The conjecture is that large institutions are granular, that is, they cannot be reduced to a diversified collection of smaller entities. We provide evidence of a causal effect of ownership by large institutions on the volatility of their stock holdings. Moreover, we show that these effects are driven by larger-than-expected trades as well as by concentrated investor flows. Finally, the stocks owned by large institutions exhibit stronger price inefficiency.

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تاریخ انتشار 2015